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What You Need to Know About Life Insurance

Posted by on April 26, 2019 in Stuff with 0 Comments

For many of us, life insurance may seem like a strange and distant concern. When we’re young, we may feel invincible. And how could life insurance work, anyway — how can anyone provide insurance against something as inevitable as death?

As we grow older and start families, though, we begin to think about life insurance. We should take the time to figure out how life insurance policies work, and we should strongly consider investing in one ourselves. Here’s what you need to know.

How life insurance works

Life insurance is like other insurance policies in many ways: You’ll pay a premium in exchange for coverage, for instance. But, in other ways, it’s unique. Most insurance policies either pledge to pay out a settlement if something bad and unlikely — like a car crash or a house fire — happens. Others, like health insurance, mix that sort of disaster coverage with help in paying for regular care, like a visit to your primary care physician. With life insurance, you’re covered for something that (like it or not) is surely going to happen: your death.

The idea behind life insurance is that the loved ones that you designate as beneficiaries will be given the insurance settlement after you die. This money can be a massive help to your loved ones, especially if you are your family’s sole or primary breadwinner, and especially if you pass away unexpectedly. The life insurance payment can help cover the costs of funeral services and replace your lost income, among other things.

Life insurance companies make money in a few different ways. They make money when people live long lives and pay their premiums for many years, because the paid amount can be greater than the settlement amount. And life insurance companies also make money when people stop paying their premiums and lose their coverage, because the companies keep the past payments and no longer have to pay a settlement when that person dies.

For customers, the appeal is clear. If you live a long and prosperous life, your family will still get a nice settlement, even if it’s not quite as much as you paid in; and for all of those happy years, you can rest easy knowing if you don’t live as long as life as you might have hoped, your family will be covered.

Another option: a viatical settlement

Life insurance is a powerful investment in the future of your family. But it’s not without its drawbacks. When you’ve been paying into a life insurance policy, you have a valuable payment coming to your family after you’re gone. But that can be a frustrating thing when you are dealing with major expenses late in your life because of a serious illness. If you’re not careful about your finances, you could end up with mounting medical debt that, by the time you pass away, will be larger than the payments your policy will generate. Medical debt is the No. 1 cause of American bankruptcies. You don’t want to leave your family bankrupt, but what can you do?

In cases like this, you need cash fast. You need to be able to keep debt down and stop interest from messing up your family’s finances. Your life insurance payout would mean a lot more to you now than it would in a year or two, which is why you should consider a viatical settlement.

A viatical settlement allows you to trade your future payout for cash now, and it can be a great option for those with serious illnesses and big expenses to worry about. And viatical settlements make life insurance policies much more versatile and even more useful — which is all the more reason that you should be investing in one.

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